MIG Forex Research

The Bank of Canada left it's target overnight rate on hold at a record 0.25% today with a small downgrade for growth borne out of the persistent strength for the Canadian Dollar against it's more southerly neighbour the greenback.

They shifted out expectations of inflation returning to their 2% target to the 3rd quarter of 2011 and pulled 2009 growth expectations down a tenth of a percentage point to -2.4%. Though an economic recovery is 'underway' (they continue to expect at +3% GDP result for 2010) the recent strength of the Canadian dollar is expected to largely offset any positive signs that have been seen over recent months.

They remain committed to keeping rates on hold until June 2010 - the next meeting is in early December - but it is intersting to see the divergence between Canada and the other members of the Dollar Bloc in removing rates to more normalised levels.

Though all three have been helped by the commodity rebound, it is clear that Canada, who are much more reliant on the US than are Australia or New Zealand, is counting the cost of the post-Lehman Brothers shift in trade away from an impotent US consumer to a liquidity fuelled Chinese economy. Whilst Australia seems increasingly worried about letting the inflationary genie out of the bottle, Canada remains stuck in the mire. I continue to have doubts over whether the current Chinese support for the antipodean economies continues, but for the timebeing, being aligned with the new superpower seems better for one's health than being paired by the old guard.